No surprise that this past election, campaigns took advantage of big data AND they also took advantage of the growing awareness of persuasion techniques and incentives that fall under the umbrella of Behavioral Economics…both topics we discussed in the past few months.
Nate Silver, and his 538 blog seems to have become an even greater rock star recently. By applying his deeper understanding of probability and statistics , he successfully predicted the election outcome well in advance of poll openings.
Today’s New York Times carried an interesting story about the unofficial influence of Academics with expertise on Influence. I urge you to read the behind the scenes story Academic dream Team that Helped Obama’s effort.
Not to be undone, TIME magazine got to the real team working inside the Obama campaign to get the details. After the election they were free to publish the following story:
If business needs further evidence that real time analysis of integrated data delivers value, the lessons learned during the election offers some great insights. The precedents set by this new database and the quants analyzing it, suggests additional opportunities to make change that goes down more smoothly, like Mary Poppins advised using her spoonful of sugar. Good or bad, the reality is that big data made a big difference in this election and on the persuasive front appears to have been effective in delivering the most relevant messages to individuals. Hard to believe that general broad-based appeals such as bill boards and television advertisements will continue to call for high level resource investments. Then again, that’s another story I’m sure.
I haven’t seen all the articles out there but more are bound to follow. We will do our best to revisit these topics again in 2013.
A guest post by: Willard Zangwill, Ph.D., Professor, University of Chicago, Booth School of Business
Rachel Kaberon, in preparation for the Strategy Management Practices Issues Group discussion of the Chicago Booth Alumni Club, asked me to put together a page or two of thoughts about uncertainty in decision making. Since she had helped me with software I have developed to assist in complex decision making, this was my chance to return the favor. Hence, here are some thoughts that strongly influenced my thinking about uncertainty and how I have tried to suggest how people might better predict the future and make better decisions.
First is that uncertainty is remarkably uncertain, and our efforts to predict it are likely worse than we often assume. Overconfidence bias is indeed strong. What demonstrated this to me was the outstanding work of Philip Tetlock[i]. He studied how accurate were the predictions of experts and pundits in the political or economic areas. These people were similar to the prognosticators we see on television or other experts discussing what might happen to events in the future. Tetlock examined such predictions for years and studied tens of thousands of them, which was a huge undertaking.
What Tetlock discovered was how bad the predictions were. They were only slightly better than chance. Not the result one might expect, but worse. Too many events seem to unexpectedly occur in the future.
Interestingly, the prognosticators that were most confident and sure of themselves, were wrong more than the more cautious forecasters who hedged and added conditional statements. The confident experts tended to gain more support and attention, as their confidence convinced others, but that did not make them more right.
How could predictions be so faulty? By and large, we tend to think we predict better than we do because if we are wrong, we give ourselves excuses. We suggest that no one could forecast what really happened, or that events no one could have foreseen occurred. That process absolves us of blame and provides exoneration. The net result, however, is that the future is harder to predict than most of us are likely to believe.
Given this conundrum that we have to predict events, but are probably not that good at it, what can be done. Here are a couple of experiments that I have found useful to try to build upon.
As Gary Klein[ii] has noted, Research conducted in 1989 by Deborah J. Mitchell, of the Wharton School; Jay Russo, of Cornell; and Nancy Pennington, of the University of Colorado, found that prospective hindsight—imagining that an event has already occurred—increases the ability to correctly identify reasons for future outcomes by 30%.
The concept is illustrated by the following. Consider some upcoming event, say a presidential election. Then think of reasons why a particular candidate might win.
Now do the following. Assume it is now after the election. And assume it has just been announced that candidate has won by a solid margin. Now think of reasons that triumph occurred. You will likely think of more reasons. In essence, assuming an outcome and carefully imagining it, helps you think of reasons why that outcome might occur. Perceiving those additional reasons then helps as you proceed to analyze the situation.
A much different approach in a study by Armstrong and Green[iii], was also quite helpful for forecasting the future. In brief, they had subjects predict the outcome of past situations that were unknown to the subjects. Since these were past situations, the actual outcome was known, although the subjects did not know those outcomes. After the subjects made their predictions about the outcome of these situations, the accuracy of the predictions were then determined.
At this juncture, the experimenters then changed the situation. They required that the subjects first consider several situations analogous to the one they had to predict; these were analogous situations where the subjects knew the outcomes. Once they considered those several analogous situations, now the subjects were told to predict the situation in question. The success rate went up substantially. In fact, when a group of subjects were involved and they carefully compared analogous situations, the accuracy of the prediction roughly doubled.
The message seems to be this. When we forecast an event, we tend to do that by thinking of some similar event that we know. That similar event we know, gives us ideas about the outcome of the event we are trying to predict. Now take this one step further. If you consider several events roughly similar to the one you are trying to predict, it is like increasing the sample size. The accuracy of your prediction should rise. Moreover, just examining how several situations similar to the one you are considering turned out, is illuminating, and by exposing the complexities of the situation, provides useful insights.
Given the difficulty of predicting the future and the challenges thereof, it might help to broaden our decision-making framework and, in particular, to do more breakthrough thinking as that might provide us with an advantage. Considering breakthrough thinking, as least for most people, good breakthrough ideas seem to occur almost randomly, as we tend to think about an issue and the exciting idea somehow jumps into our minds. But there do seem to be procedures that help them occur more frequently and more when needed. The key insight is to look and examine where the breakthrough idea is more likely to occur.
To illustrate, suppose you cannot find your car keys and have searched all over the house. In frustration, you ask your spouse. He/she replies that they are on your dresser. Despite the mess on your dresser ( not necessarily yours, but certainly mine) you dash over to your dresser and with only a little rummaging, quickly find your keys.
As another example, when they search for oil, they do not put the exploratory well anywhere. But they first conduct detailed geological and seismologic examinations to locate where the oil find is more probable.
The concept for breakthrough ideas is the same. Suppose you have one million possible ideas to search through in order to discover your breakthrough idea. Finding that breakthrough idea from among the million possibilities, is not likely to be easy. This explains why getting breakthrough ideas is usually a challenge, as it required a quite large search to uncover it.
On the other hand, now suppose you obtain some clues as to where that exciting idea might be found that narrows your search down to ten possibilities. You can easily search the ten and, in all likelihood, uncover the breakthrough idea.
The insight is to examine where the breakthrough idea is likely. It is like drilling where the oil is likely, and you will more easily find it. One of the concepts behind the software for decision making I developed takes advantage of this and seeks to suggest where the breakthroughs will be more likely, helping you to more easily discover it.
The uncertainty of the future is probably far greater than most of us assume. Here I have tried to suggest some means that might help reduce that uncertainty and improve decision-making. There are other ways as well, and they should help as you proceed to make difficult decisions for the future.
[i] Philip Tetlock, “Expert Political Judgment: How Good Is It? How Can We Know?” (Princeton)
The looming anniversary of 9/11, reminds us all that unthinkable actions and events do happen. This past Labor day, on the anniversary of hurricane Katrina , a reminder arrived in the form of Hurricane Isaac to test the city, residents and officials learning in the aftermath widespread devastation resulting from inadequate or incomplete planning. After several days of pelting rain, Isaac quieted into a storm system and moved north and New Orleans welcomed back tourists and a convention. New Orleans Mayor Mitch Landrieu reflected on his City’s Post-Isaac response and how quickly the region was able to bounce back, crediting the many lessons put into action and systems working according to design. (see http://www.huffingtonpost.com/karen-daltonbeninato/exclusive-new-orleans-may_b_1861685.html)
After several years of a lingering recession and the rapid loss of faith by investors in companies once considered darlings, what prevents once successful growth companies from staying on their A game? The monthly discussion tackled these questions and a lively conversation ensued.
In part, NOLA’s success combined responses to feedback and prior experience as well as awareness and attention to changing weather. Hurricane Katrina was a category 5. Experience with less powerful hurricanes may have lulled many into complacency, resulting in a series of failures, crippling recovery efforts while zapping the resiliency of the wider network. As the first of three referenced articles* suggests, many companies suffer from similar competency failures.
Warning treatises of the ever approaching threat complete with foresight and clear predictions,similar to the increasing accuracy of hurricane tracking and timely issuance of early warnings from NOAA systems, failed to align corporate resources to respond adequately and in time once the prediction became a reality. Today, the mounting buzz around Business Intelligence, Big Data Analytics likewise offers more organizations the promise of foresight similar to these early warning systems. Yet, in spite of their popularity, planning and internal resiliency appears uncommon a practice.
Like Howard Dresner, I too was surprised by findings from his wisdom of the crowds BI status survey this Spring.
“[BI ] penetration remains relatively low. We’ve seen improvement over the last years, but it’s not happening as quickly as we expected. Only 20 percent or fewer users within most organizations have access to BI tools.”
Information and trend tracking opportunities may be growing; but data’s impact extends only as far as its availability to those who need it. Is it the organization or the individuals that fail to act? Is the information inadequate or the failure of priorities that pit short-term performance against long-term planning and development?
Peter Schwartz, the author of not only books but numerous scenario planning models advises organizations in resiliency and suggests, that many surprises are predictable. More models can be used in concert to help uncover missing information or create the likelihood of a wider range of events. Consistently, few organizations do anything to prepare or adequately incorporate this information into their planning.
It’s not the inability to predict a disruption that trips them up. Kodak, for example, created the original digital camera technology and RIM cornered the market on business cellular phones but neither found it possible to shift their culture, and temper expectations and performance permitted them to redirect resources.
At any level within an organization, the consistent imperative demands performance improvements. Faced with a choice of trying something new, using untested abilities to enter an unproven market and pursuing the path in which you excel and know really works, naturally we choose the latter and minimize risk. By insuring the organization higher performance near term, we sacrifice the opportunity to develop the next thing and ensure performance in the long-term. Scenario planning activities might cue leadership into the inevitable performance peak, but only the accuracy of its estimation of impact and arrival window lends the necessary credibility and urgency to impact planning or resource redistribution. Do you have to be small? If your existence began as a disruptor once you make the shift to deliver at scale, do you lose your ability to adapt?
Apple, GE and IBM , all of whom operate at incredible scale, manage to avert this problem and seem to consistently reinvent themselves, how?
Failures to adapt occur for many reasons, from incomplete or missing information to a situation missing clear visionary leaders and visions. Few organizations capably invent and manage simultaneously, each require different skills and sensibilities that often need a skunk works separating innovation functions from business as usual.
Making the decision and committing to a course of ongoing development or innovation doesn’t happen without leadership capable of inspiring, communicating and insuring the flow of external rewards to incent the behaviors necessary to make the shift. Pharma and Aerospace industries famous for devouring cash at a rapid rate, historically funded r&d separately . The central business role differs fundamentally, and picks up the innovation created offsite and then works to make it profitable, and efficient.
A culture focused on production also capable of innovation culture may co-exist but rarely, are they coincident, as both 3M and Google demonstrate. Managing the two can be very challenging and attaining flawless, profitable execution can energize the entire company. Consultants often used to help bubble out the great ideas and then bubble back in the means to realize the innovation effectively, integration based on critical mass.
In spite of an innovation culture, management and intention, the decision to find/see the value in the innovation may still remain elusive. Few leaders combine visionary skills and the proper balance to identify the point between risk and reward that works. Steve Jobs clearly did.
Without this combination, strong, capable leaders may not easily articulate their vision. They may however be good at pivoting or adapting the organization’s direction based on understanding the future interests of your customers or the values of your future customers.
How many disruptive innovators don’t make it up from the floor? Is their vision in sync with the market? choosing between keeping your existing customers requires that you talk to the wider market as well.
General Electric’s internal growth targets depended on 5% being organic and 3% from acquisition. The idea that if you build it and they will come is not a winning strategy. Looking for opportunities to be helpful to your customers will take you farther. Did Steve Jobs when creating the ipod, ipad and iPhone from the perspective of championing his vision, or more honestly creating products that consistently are appealing because they prove helpful, easy to use, reliable and enjoyable.
The bigger challenge for business is finding out who is their customer, not merely looking to who they think they know. Again, a strategy that pivots the firm toward the future, help the customer explore can serve this purpose.
Internal disruptions, create distance from the norm, the routine and can also create new space. To succeed at this, the organization must dedicate sacred space (white space) and establish new rules of play.
Emotion/experience and analytics all filter information present in the environment. When mixed signals arrive or separate information conflicts, our emotion/past experience become the default and explain why too few companies take notice of the shifting sands beneath their feet. Thanks to Bill Hass for sharing this reference and corresponding link on how to heed warning signals.
NOAA Betty Morrow summarizes some of these findings in a paper that should prove interesting and relevant –Risk Behavior and Risk Communication: Synthesis and Expert Interviews by Betty Morrow. includes a series of Best Practices in WARNING!
People do not respond to warnings for a number of reasons:
- personal risk preferences
- other priorities
- contradictory signals
- aversion to authority or outside experts
- lack of a physical or mental capability to respond…
Most prudent to outsource innovation as few organizations capably manage both business as usual and maintain freedoms of space and spirit that make it possible for organic innovation to bubble up and coordinate resources necessary to its success.
Looking at things differently is essential, the management team needs to keep asking at every turn how can this work differently.
Few companies seem to know their customers as well as they believe they do, or as well as successful disruptors actually do.
Given dedicated space and time, encourages people to find the market that suits their company and furthers its growth.
Organizations need to find ways to create space and time for innovation, maybe best to do it beyond the 9-5 or discipline of the normal routine. To succeed the space and time needs to take people to different mindset a different place emotionally if not physically.
True disruptors are rare, as is a combination of vision and innovation committed to creating things that delight customers by exceeding their needs.
Outsider perspectives can validate internal evaluation more objectively and thus help an organization and its leadership avert insular thinking.
Don’t ask where your customers will be, focus on where your company will be in the future to assure your plans and choices make sense .
Disruptors are good at putting the horse before the cart, charge away at the hard problems; however large organizations the challenge is getting the disruption IN, finding a way to integrate the new thinking, innovation etc into the 9-5 routine. In other words, the bubbling out or successfully disseminating and gaining acceptance for the change internally harder than the origination and prototype of the disruptive idea.
If you can see the emergent needs, successive small bets may be a wise strategy to help an organization make the proper shifts and survive.
There is a natural aversion to follow disruptors who lack authority and so organizations internally fail to create the mental and physical response capabilities. Even when warned, organizations’ risk averse nature stops them from adequately responding especially when the early signs are rarely perfectly clear or direction determined to impact them.
Organizations who lack agility and ability to meet the challenges as they arise externally, and a sense of urgency can help them build in more adaptability. No urgency, little or no adaptation.
Risk Reward, resiliency is often a balancing game, with strategic imperatives. Maybe boards of directors should press harder for this capability.
The problem of bubbling innovation IN, requires organizations to keep an open mind, even if the organizational readiness for disruption may be missing. Maybe embedded in any undertaking is the rule for a profitable sunset?
Defining a vision not equal to managing it, refining or carrying it over time.
Clearly a focus on the future matters more than ever, especially when it appears that the average lifespan of organizations keeps shrinking.
I’m sure there are some points I missed. In 75 minutes it’s hard to cover such an important set of questions and come up with some clear suggestions. Obviously there’s no such thing as a silver bullet and one size will never fit all but I hope you will still add in your own thoughts or reactions, Perhaps you have an anecdote or lesson you’d like to share? We’d love for you to post them below.
Note, if you are local and free on Thursday 9/13 we will be reprising the conversation over cocktails –check the Chicagoboothalumniclub.org calendar for details….we are NOT going to be at Pegasus as earlier announced.
a) Help! We’re being disrupted!
b) VRM– Let’s fix the car rental business, a case in vendor relationship management
c) Capability maturity and organizational effectiveness
On Friday April 20, 2012, the discussion participants couldn’t wait to talk about Zombie companies. Sydney Finkelstein’s assessments of the obvious signs sparked great conversation and opinions that in the comfort of the cozy board room of Bank of America’s Chicago offices were easy to express. In no time we were talking about the responsibility as well as the difficulties associated with changing underlying beliefs and the culture that perpetuates them.
Ron Heifetz, director of the Leadership Education Project at Harvard University’s John F. Kennedy School of Government expresses the challenge this way.
” in business, vision has come to mean something abstract or even inspirational. But the quality of any vision depends on its accuracy, not just on its appeal or on how imaginative it is….”
An accurate vision fits with wider realities, and as Heifetz says, it helps others around you face that reality too. That’s the challenge; and few leaders seem able to develop and demonstrate both capabilities. Or, perhaps it’s only possible to recognize the failure after the fact?
True enough, some of the same observed behaviors that identify a zombie also represent winning companies, at least in one window of time. Are these companies vampires, resilient in the face of change?
Consider Goldman Sachs, what saves them from becoming a zombie company? Their leadership and culture perceived as arrogant and smug led discussion participants to wonder about their perennial ability to stay on top amidst significant public outrage.
Their record on customer relations is far from stellar. Are they really consistently better at the game than all the other players? Because this is the blog, we can share the link reference example of racy tweets allegedly from the elevator at Goldman Sachs.
In contrast, one of the bubbling realities that companies need to consider is their impact on the community. The measures of success exceed those shared in conversation with and among shareholders. Companies that do consider the community impact in their vision could never continue to behave, or perform, like Goldman.
The one-dimensional success perhaps may be the reason too few companies recognize that they need to keep pushing, reaching and imagining if they wish to also succeed in the future. N-dimensional cultures and visions CAN deliver ROI but they may need some support, or latitude.
In celebrating success, its easy to overlook the paradox. As instruments of your success, the values and efforts may lead to myopic thinking. If the goal is to get straight As, the ability to acquire the wider learning may get lost. Short term focus also impairs the long-term.
What if any responsibility do investors and public accountability play in the failure of a CEO? Poor fits between stakeholder expectations and company performance often result in shorter CEO tenure. Failure results when CEOs fail to communicate their vision, and spread it within the ranks. Whatever the reason vision plays a central role and performance suffers when it is often poorly conceived, confused with mission or altogether missing.
Participant Take- aways
Change is hard, but help is available to those leaders willing to learn. Charles Duhigg recounts the story of Paul O’Neill as he took the reigns at Alcoa, and turned the company around based on a vision of safety. There’s more in his book The Power of Habit.For example, such as Charles Duhigg illustrates in his recent book The power of habit. [Note this was a topic the discussion took up earlier this year and notes can be found in the archive.]
Company leadership must be wary of their susceptibility to single dimension focus, the zombie factor. That said, we have to forget that there are always outliers to this rule. For example, one might find these same factors have created vampires, or resiliency within some companies. There’s always more to the picture than what the media framing reveals.
How can and do leaders inspire, and manage the natural tension that may arise between strategy and charismatic leadership? Vision, and the organizational mission must be shared across stakeholders. Leaders need to recognize their role as stewards of the vision and then cooperate with others, especially outsiders, to make the appropriate adjustments to remain timely, and relevant in the marketplace. Zombie companies, by Finkelstein’s definition, lack a vision; and not victims of a poorly conceived or applied strategy.
How do companies stay relevant amidst the wider turbulence in the environment? Companies lacking a vision altogether represent a different kind of failure. But for those with a vision, their ongoing challenge is to develop and support the vision as their guiding star. Not in an overly dedicated, reverential fashion, but they also need to adjust it from time to time.
Absolutely important for organizations to get their distinctive vision and mission right, but equally important is to pass and communicate them to all stakeholders.
Tough task to balance the creative tension between leader as steward of the vision and holding it at a sufficient distance to also recognize changes on the wider landscape. The skills and strengths to make the course corrections as needed while still driving execution is much more complicated and certainly not an envious task.
How can CEOs be compensated for the vision while being paid to deliver EBITDA?
In closing, we hope you’ll add your thoughts or inspirations, we’d love to keep the conversation going.
Next month the topic is BIG DATA–real challenges to strategy or a just another sheep that we’ve mistaken for a wolf in sheep’s clothing.
Below are the series of articles we reviewed and engendered a valuable discussion. Do feel free to add your comments and/or thoughts.
Perspective from Sydney Finkelstein, a strategy and leadership professor at Dartmouth Tuck, who warns against a culture too insulated and prideful in their success.
How to Spot a Zombie Company (followed by How to Destroy zombie company mentality)
Sydney Finkelstein, Tuck professor of leadership and Strategy.
Forbes, 2-14-12 (and 2/16/12)
Perspectives from Doug Ready and Emily Truelove. Charting a course during Uncertain times, (adapted from the HBR piece they wrote “the power of collective ambition.”)
by Doug Ready and Emily Truelove
Shared Values perspective of Rajeev Peshawaria explains the benefits of creating a vision of what it is that you will give, not just what you aspire to get.
The Three Most Important Questions For Profitable Growth
Finally, if you wonder how to differentiate vision and mission we suggest this post in Fast company
Defining your Company’s Vision
Daniel W. Rasmus, Fast company 2-28-12
 The Leader of the Future, Fast Company 5/31/1999 http://www.fastcompany.com/magazine/25/heifetz.html?page=0%2C0
Innovation, in principle, is one sure path to organic business growth. At the least, innovation may buy your organization market advantage. At its best, depending on how successful and deeply your innovation initiative cuts into your organization, a new growth engine/platform may emerge and propel you into a market leadership post.
Most businesses and their executives recognize the value proposition innovation presents and are equally wise to the risks and potential waste of resources that naturally occur with pursuing the unknown. Perhaps the risks weigh more heavily than the promise and so few organizations take on breakthrough innovation as a strategy to organic growth. Follow this link to learn the reactions of other Chicago area strategy minded professionals
Shareholders, analysts and the public appear to admire and respect innovation, which leads companies to management dilemma. The tensions between managing your organization in the traditional style that has been shown to generate solid financial performance may be at odds with the ability innovate. It may require a complete realignment of management orthodoxies. Management 2.0–can you shift? takes a look at the increasing disconnect between market perceptions and internal management priorities.